Be Wealthy & Smart

Learn what smart moves LeBron has made that are very different from other successful pro athletes, high-paid actors and lottery winners. Congratulations to the Cleveland Cavaliers for winning the 2016 NBA Championship! I've been reading about LeBron James and what a smart businessman he is. I have to agree. 1. He knows a good deal when he sees one. LeBron signed a contract right out of high school. Under the NBA's collective bargaining agreement, he signed a 3-year deal worth a maximum $12.96 million. 2. He keeps his options open. "Next year, LeBron is expected to have the highest salary in the NBA for the first time in his 13-year career. He knew this in 2014, which is why he became the first megastar player to take a one-year contract (with a one-year player option) in the midst of his prime, and why he did the same this past summer, positioning himself to cash in on the upcoming salary-cap spike." 3. He takes equity positions. When a headphones company called Beats came to him in 2008 looking for marketing help, LeBron put an equity stake ahead of making immediate cash. He gave pairs of Beats headphones to his Team USA teammates. Perhaps he knew images of the product at the Beijing Olympics would help launch the brand. Beats later sold for $3.2 billion to Apple, and James made tens of millions. 4. He thinks long-term. Just signed a lifetime deal to wear Nike shoes. It is believed to be the first lifetime deal in the shoe and apparel company's 44-year history. No disclosure on the amount of the contract. Also, there are no personal blemishes to his reputation. 5. He thinks outside the box to create new roads less traveled. His production company, SpringHill Entertainment, currently has deals for shows with Starz, Disney, Showtime and NBC, and a development deal with Warner Bros. He's not afraid to think of new projects and to do something that hasn't been done before. 6. He thinks like an owner. That's why he recently left McDonald's to become an investor in an upstart pizza chain, and why he has cut back on commercials. Harden is getting paid for pitching Taco Bell; LeBron is trying to make his money from owning a franchise like Taco Bell. The other big-business announcement James made last week was a $15.8 million investment in Uninterrupted, a social-media platform he and his partners created last year that allows direct interaction between athletes and fans. 7. He contributes to charity. LeBron set up a family foundation and has a program called "I promise", paying college tuition to qualifiers. His foundation will donate $41 million to pay for 1,100 kids. The irony is he skipped college to join the NBA, but it certainly paid off for him. Now's he's giving back in a profound way by investing in young people and providing a way for them to have a better life.

Today is Listener Question Day! Brian asks: Dear Linda: Thank you for podcast #125, which brought me back as I began to drift into investing outer space. I want to know how earnings forecasts are made; what are they based on? Are earnings forecasts the same as earnings predictions? Are they based on past earnings? Because I didn't think we used a company's historical data when looking at current market trends. Thanks, Brian Thank you for the questions, Brian. Earnings forecasts are a compilation of information that is obtained by stock analysts at brokerage firms from a company's management and their own estimates. As you know from my podcast "What makes stocks go up?", earnings are what matters! Analysts are called "sell-side" analysts because they are "selling" their research to large pension funds, portfolio managers, and other institutional managers. Their job is to estimate what a company's quarterly and annual earnings will be. Since earnings are reported quarterly, 4 times a year the actual numbers are compared to the consensus's numbers. To calculate them the net earnings are divided by the number of shares outstanding, for an estimate per share. For example, $1.20 earnings per share or EPS might be $12 million/10 million shares). Coverage is initiated with either a "buy" or "hold", rarely is the term "sell" used because often the investment banking side of the firm may have a relationship with the company and wants to support the stock price rather than encouraging selling it. The consensus is made up of an average of all the analysts estimates. For large cap stocks that can be over 100 analysts and for a small company it may be only a few. Once the consensus number is calculated, sometimes there is a "whisper" number that emerges which is a rumor of a different number (often higher) than the consensus. If a company is growing quickly, a whisper number used to get thrown around indicating the company is doing better than was forecasted and as a result it may boost the stock more. Fair disclosure laws (known as Regulation Fair Disclosure or Reg FD) made this illegal and companies now have to give all investors access to this information at the same time. A publicly traded company has rules about when they can release information to the public, so analysts fill the void and try to calculate what the earnings will be. They can meet with management and talk about sales projections, stores opening and closing, overseas trends, etc. and the analyst then puts the pieces together to come up with an estimate of what he or she thinks earnings will be for the quarter and the year. It's a big deal when a company misses estimates by having slower growth or lower earnings than were expected. This happened to Apple recently and they lost $47 billion in market capitalization in one day. That's because money managers manage their portfolios by following what stocks have increasing earnings and a stock becomes a real darling if it is increasing earnings at an increasing rate (but you already knew that because you've been listening to me). You can listen to the podcast on Apple in podcast #125. When a company misses the consensus earnings estimate, even by a penny per share, it's a big deal. A stock can drop like a rock in that case because the thought is that the company's growth is slowing, which means it might be time to redeploy the money invested in it into a company that is growing faster. To answer your questions, yes, historical data is considered when analysts are trying to predict the future. They will take into account what I mentioned earlier and try to get as close as possible to the actual numbers. When actual earnings reported beat the forecasted earnings, usually the stock rises because it has "exceeded expectations". If it meets consensus earnings, it often will sell off a bit because it only "met expectations", especially if the stock price has risen going into earnings season. That's an old Wall Street expression known as "buy on the rumor and sell on the news", which is what often happens during earnings season. One bad quarter can impact a stock's price negatively for fear that it's a trend of future slower growth. However, if there's a good explanation such as a colder winter with more snow caused shoppers to be snowed in and stay home thereby temporarily depressing sales, there's some leeway allowed. But if there's a trend of slower sales that persists and turns into lower earnings, it will eventually be reflected in a lower stock price. The best thing to do is keep finding those companies that have earnings rising at a rising rate. That company will continue to exceed expectations until they don't. Hopefully by then they are the size of Apple's market cap and one of the largest companies in the world. Before I go I'd like to share some listener reviews. Thank you for subscribing, rating and reviewing the show! You can also share the podcast with friends by clicking the little box with an up arrow that is to the right of the little gear wheel symbol on your phone toward the top of your screen. I really appreciate you letting your family and friends know about the show! You're so kind to me in the reviews and honestly sometimes it's a little embarrassing to read them out loud, but I want to thank the people who leave me reviews. It means a lot to me and it helps more people find the show.

Learn 7 Signs Why a Recession May Be Looming. 1. Corporate profits are tanking. Corporate profits have been weak since late in 2014 according to JP Morgan economist Michael Feroli. Growth in corporate profits has been negative since Q3 and Q4 of 2015 and flat Q1 of 2016. The three main reasons corporates are under so much pressure are the strong US dollar, collapsing oil prices, and rising wages. "Declining corporate profits as measured by US equity EPS have been closely followed by, or coincided with, a recession 81% of the time since 1900," said Dubravko Lakos-Bujas at JP Morgan. Paul Mortimer-Lee from PNB Paribas projects that the risk of recession over the next 12 months is somewhere between 40% and 50%, depending on how terrible the incoming labor market data looks. Some people speculate there is little to no earnings growth expected globally. 2. Unemployment report Only 38,000 jobs were added - far short of the 160,000 estimated. 3. The dollar has been strong since 2015. Strong dollar makes US exports more expensive. Other countries' currencies are pegged to the dollar so it hurts their exports too. 4. ISM (manufacturing) report has been neutral. An indicator of 50 is neutral. March was 51.8, slightly expanding. Last 5 months were over 50, prior 5 months under 50. 5. Construction is declining. -1.8% is the largest drop since 1/11. 6. Baltic Dry Index (shipping) is very low. BDI measures iron ore and coal. More ships built to transport iron ore and coal have been scrapped so far this year than in all of 2014 as the commodity slump stunts the life expectancy of bulk carriers. Twenty-nine Capesize vessels with an average age of 21.4 years have been turned into scrap through March 4, according GMS Inc., the world's biggest cash buyer of ships for recycling, citing data from Clarkson Plc. That's a faster pace than the 93 destroyed all of last year and the 25 in 2014. The Baltic Dry Index, a measure of what shipowners earn from transporting commodities, has plunged to the lowest in more than 30 years amid slowing Chinese demand. 7. Consumer spending is a bright spot, or is it? Biggest increase in 6 years (mostly autos). Scary trend of auto loans for 125% of car value.

Learn why wealth building requires investing, that frugality is not what is going to make you rich and the steps to move forward. In financial articles, I often hear people say the secret to being financially successful is "spend less than you earn." Spending less than you earn will obviously keep you out of debt, but it won't make you rich. People miss the point. Spending less and earning more are not the crucial parts of wealth building. (This is what drives me crazy about the frugality movement). Its really all about investing. Remember the "6 Steps to Wealth" and step 4 is investing in a money engine and step 5 is compounding at a high rate? Those are the crucial steps to wealth building! So the question becomes, how are you investing? What are you investing in? Why are you investing in those things? Have you consciously thought, "where is the best place to invest now?" meaning "where is the place that is going to grow my money best or at the highest rate?" Because THAT is how wealthy people think. Then they look for those opportunities, opportunities to compound at the highest rate possible without taking foolish, undue risk. It's not about gambling. Or buying a lotto ticket. Those are things that leave winning to chance. It's about controlling what you invest in as much as possible to build more wealth. Obviously you don't "control" a stock, but you do control choosing a stock or the company you're investing in. That's why people join the VIP Experience, because they want to know where I think the best place to invest is. www.lindapjones.com/joinvip Action steps included.

Learn where you're wasting money, what's really causing problems with saving money and 6 ways to have more money at the end of the month. This is listener question Friday. Here is our question for today: Linda, I make a good income but at the end of every month I don't have any money and I can't seem to save money. What can I do? Thank you, Chris Well Chris, this is a common problem. Many Americans make a good income yet have nothing to show for it. An article says the poorest Americans percentage-wise spent almost as much on restaurants as the richest. 16.6% of their money is spent on eating out. Only the top 20% spend a higher percentage than that at 17.8%. My friends in NYC made a high income and couldn't afford to buy a home. The most common problem is eating out too much according to this article. As Elizabeth Warren and her daughter, Amelia Tyagi, revealed in their book The Two-Income Trap, the problem wasn't lattes and other frivolities. In fact, the cost of everything was significantly lower than it was in the 1970s. Warren and Tyagi demonstrated that the problem was the fixed costs, like housing, health care, and education cost the average family 75 percent of their discretionary income in the 2000s. The comparable figure in 1973 was only 50%. According to the article, people also spent more percentage-wise on gas and groceries. It comes down to making smarter choices. Planning instead of being too spontaneous. Here are 6 suggestions to help you save money: 1. Plan your meals and eat fresh food. Learn simple, quick recipes. Stay away from processed food and fast food. 2. Plan your trips and use public transportation when possible. (airport $5) 3. Pay yourself first. Put 10% of your paycheck aside first. 4. You can use apps to help you (like acorns and digit) to help you save. 5. Open a brokerage account and start investing asap. 6. Move closer to your job so you can walk or ride a bike.

Learn the 4 steps to automate your personal finances and the apps and websites to help you. Interview with Jen Turrell from the "Financial Fluency, Speaking the Language of Money" podcast. Here are the 4 steps: 1. Automate bills at your own bank for free. Batch your bills on the 5th and the 20th. 2. Set up a separate bill pay checking account that is attached to autopay bills. Add up all your regular bill amounts. Live a month ahead and put a month's expenses in there as a buffer. Automate your savings too. 3. Audit your purchases and see if you can cut any subscriptions or impulse buys for your emergency savings account. 4. Turn on automation and make sure all our bills get paid. Monitor your system. Resources: Book: I Will Teach You to Be Rich by Remit Sethi Apps: Acorns, Digit Websites: Mint.com, Betterment, Motif, Ellevest, WorthFM by DailyWorth Listen to Financial Fluency, speaking the language of money on JenTurrell.com or iTunes.

Learn how to raise kids that are financially fit and savvy with money. Interview with Shannon McLay from Financially-blonde.com. Tweet: Financial literacy begins in the home. @financially-blonde @lindapjones Here are the 7 steps to raising financially fit kids: 1. Say no. Limit the things you say "yes" to and learn to say "no" more often. 2. When you say "yes", have a budget and constraints. A "yes" is not an unlimited budget. Give them parameters and explain the cost to the family. Let them contribute. Give them a dollar limit to pick out a toy. 3. Use cash to teach your kids about money. Let them count the money and be aware of how much they have. Don't hand over credit cards and debit cards or it will become a mindless swiping activity. They don't have an awareness how much something is worth or how much is left on the card. 4. Allow them to fail. It's ok to let kids experience failure with money. Make it as realistic as possible. Let them use their money even if they spend it all and can't buy something else. 5. Let them be responsible for their wants. Parents are covering their needs, let the kids cover their wants. 6. Teach them to work to earn their money. Show them that specific tasks must done to make money. Use rewards charts with points for chores like making their bed, cleaning their room, doing the dishes, etc. You can also create bonus money they can earn. 7. Allow them to participate in family financial decisions. Money is still a taboo topic in peoples' homes, but kids need to know the decisions you're making as parents. Let the kids see your family budget. Talk with them about charitable giving too. Heifer.org – Buy a goat for a community and help cure poverty. Bonus tip: How to get your child to invest! Talk about investing. Let them choose individual stocks. Companies they patronize are a good place to start, ie. Nike and Dunkin' Donuts. Explain how they are part-owner as a shareholder.

Today is listener question Friday. I received an email about asset allocation and I thought that would be a good topic to podcast about. Asset allocation is how you decide to divide up your equities and fixed income (stocks and bonds) as determined by your risk tolerance in order to minimize risk and maximize return. Think of it like a pie that is cut into varying sized pieces. Each piece of the pie is called an "asset class". Asset classes include: large cap growth, large cap value, mid cap growth, mid cap value, small cap growth, small cap value, international stocks, REITs, commodities, emerging markets, bonds and cash. The overriding concept is that it's difficult to determine which asset class (pie piece) will perform the best, so you want to have a little of the important ones. Traditional AA is Aggressive, Moderate and Conservative and most investors feel they fit one of those categories. Aggressive - Has 20 or more years until retirement. Moderate - Has less than 20 but more than 5 to 7 years until retirement. Conservative - Has 5 to 7 years until retirement or is in retirement. The mistake a lot of people make is to be too conservative too soon. Age determines a lot of it. So does risk tolerance. If young and aren't aggressive, won't get to where you want to go because the stock allocation is what is going to get higher compounding rates. So you want to be as aggressive as you can for as long as you can because most of the time this has been in your favor. So what are some traditional asset allocation models? For a long-term growth investor, you should consider an aggressive asset allocation model such as: 90% equities, 10% fixed income. For a moderate investor, you should consider an asset allocation such as: 70% equities, 30% fixed income. For a conservative investor, you should consider an asset allocation such as: 50% equities, 50% income. See www.lindapjones.com/asset-allocation for the asset allocation percentages mentioned on this episode. With interest rates at 30 year lows, you have to be careful about interest rates going up and bond valuations going down.

Learn how to overcome financial stress, why finances can affect your health, what kind of stress money can cause, and how to overcome health issues related to money. According to the American Psychological Association, 73% of respondents cited money as a significant source of stress in their lives…and for people coping with existing health problems financial and interpersonal stress can exacerbate their conditions. It can lead to ulcers, migraines, back pain, anxiety, depression, heart atttacks, lost sleep, marital issues… Three out of 4 Americans are in debt according to the Federal Reserve Survey of Consumer Finances. If you're in debt, tackle it head on. There are many things that are within your control like: a) Talk to the credit card company and asking for a lower interest rate. Many companies will try to accommodate you if you've lost your job or have health issues in the family, for example. b) Talk to a debt consolidation company. Companies can consolidate your debt into one payment and it usually does NOT hurt your credit. Credit is only impacted negatively if you write off a debt. c) Talk to a Financial Planner and see if they can help you reorganize some accounts and get you back on track. You may be able to take money from a Roth IRA for children's college, etc. d) Sell something that will generate cash. Sell a painting, jewelry, sports equipment, an RV or motorcycle to get cash and pay off debt. If you have to pay to insure it, that's even better! e). Get a side hustle. Become an Uber driver, work for TaskRabbit, rent out a room on AirBnB or get a part time job using your talents as a fixer upper, painter or window washer. Here are 5 tips to overcome financial stress: 1. Your stress is caused by how much you worry, not how much you owe so try to worry less by trying to meditate. Meditation can clear your mind and reduce your heart beat. It clears your thoughts and gives your brain a rest. 2. See what really relaxes you. Watching TV might be what you think relaxes you, but it might not. You might actually feel more relaxed by walking, being in nature, gardening, going to the beach, hiking, etc. 3. Exercise. You don't have to go to the gym, you can play music and dance, do lunges across the room, work with hand weights, walk the dog, ride your bike, etc. Be creative about your exercise. Think like a child. Yes, you can go to the gym but you don't have to. 4. Cut out unhealthy habits like smoking or drinking too much, which can leave your brain feeling foggy. 5. Journal your frustration. Get it out of your head and onto paper. It's a confidential way to scream and yell and get your anger out.

Learn the advantages and disadvantages of renting vs. owning a home, how to decide what's right for you and the ONE thing that should be the deciding factor. Advantages of Home Ownership: Forced savings in the form of equity Tax benefits (interest deduction) In control You own the property Can do what you want to it Benefit from prices rising Disadvantages of Home Ownership: Mortgage interest to pay and mostly interest at first Debt around your neck Can be foreclosed Pay for repairs, maintenance, insurance, yard Property tax Advantages of Renting: No real responsibilities other than rent No cost of repair or maintenance No Taxes or insurance Might be less expensive than buying No down payment Opportunity cost of down payment Flexibility to move, change neighborhoods or states Disadvantages of Renting: All the money goes out the door Opportunity cost of down payment - could earn $$ or 0 Can't personalize the rental to your liking or make upgrades At end of 30 years, own nothing You have a landlord Owner is in control - can raise rent, be a bad landlord Owner benefits from price rising You are paying for owner's house Financial Example Rental Own $1,000/mo. $300,000 purchase price x 20% down = $60k $240,000 loan @4.5% interest $1,000/mo. vs. $1,216 (tax deductible) $800 after tax +insurance +maintenance +repairs $1,000 vs. = $1,000 est. Consider: How long you plan to live there Moving is bad - commission, moving costs, remodeling, furniture Overpaying for a home - have to pay off more than it's worth Bubble? One expert stopped here…at $1k vs. $1k Noooo! At end of 30 years, $0 vs. $300,000 (possibly more)! The forced savings is the critical element to consider!